Rethinking gas from Egypt

Instead of fantasizing about Norwegian-like gas bounties, it’s time to begin exploiting the probably more modest resources discovered here.

Egypt gas pipeline blast 311 (photo credit: REUTERS)
Egypt gas pipeline blast 311
(photo credit: REUTERS)
It’s becoming a regular occurrence, and an increasingly frequent one. On February 5, April 27, July 4 and July 12, the pipeline that supplies natural gas from Egypt to Israel was blown up. The last two incidents featured attacks by masked men on the personnel operating and guarding the Sinai facility.
The perpetrators appear persistent, while Cairo’s post- Mubarak rulers are unable to control Sinai lawlessness, meaning that this sabotage can no longer be downplayed as the odd exception to the rule. Added to deliberately hyped allegations in the Egyptian media and body politic that the gas deal with Israel was tainted with corruption, and the accompanying strident campaign for its abrogation, it becomes impossible to avoid the impression that deeply troubling processes with possibly game-changing implications are under way.
So far in 2011, no gas at all was piped to Israel for 90 days, and during most of the rest of the time amounts were reduced. This has thus far added NIS 630 million to the Israel Electric Corporation’s fuel expenditures.
One by one, we have watched the tangible manifestations of the peace treaty with Egypt disappear – cultural ties, tourism, commerce, manufacturing, etc. The gas transaction remained the strongest economic tie, but is under repeated assault.
This was a symbiotic connection, one which not only benefited Israel but also enriched Egypt’s coffers.
Nonetheless, and against its own unequivocal interests, Cairo’s current caretakers seem unable to infuse us with confidence that they won’t opt to tamper with the gas supplies.
During 2010, Israel imported 2.1 BCM (billion cubic meters) of Egyptian gas, contributing quite handsomely to the Egyptian treasury. This year, forecasts were that the 3BCM mark would be exceeded, eventually reaching 8BCM annually as new gas-fuelled power-stations are constructed here.
Substantial new gas import contracts were signed and other deals were near completion and pending when Egypt was thrown into turmoil.
But beyond the detrimental repercussions on bilateral relations with Egypt, there are immediate effects inside our own economic sphere. The IEC can no longer count on stable supplies of natural gas from Egypt, certainly not in the summer months when demand for electricity is at its peak.
The Tamar offshore gas field isn’t yet operational, and the Ashkelon one isn’t judged sufficient. The upshot is that for now, the IEC must stock up on diesel fuel (less polluting than crude). It is already seeking government aid to purchase 250,000 tons of diesel for July-August alone, and a further 650,000 tons for the rest of the year. A ton of diesel can cost as much as $2,600, as against $300 for a comparable amount of gas.
Even before July’s sabotage, a whopping 20% hike in electricity rates for consumers was in the works. The bad news from Egypt makes things worse. Only about 4 percent of the projected increase can be justified by international market fluctuations. The rest is attributable to the Egyptian factor, the need to switch to diesel and – to an excessive extent – exorbitant local excises.
Hence, now under Treasury consideration is a proposal to as much as halve excises on diesel to soften the blow to the public, already groaning under an inflationary spiral. Alternatively, the IEC would be given significant extensions for remitting excise payments.
But this is just temporary palliative care. Like it or not, Egyptian gas supplies have already been rendered unreliable, leaving us with the imperative to cushion our economy against future shock.
This primarily means speeding up the resolution of all remaining financial snarls – including tax wrangles – that are holding up local gas production. The aim should be to pump Tamar gas into our pipelines within two years at most.
Instead of fantasizing about Norwegian-like gas bounties, it’s time to begin exploiting the probably more modest resources discovered here.
Expecting Israeli self-sufficiency in the energy sphere may be unrealistic, but any moves in that direction at this juncture – when we can no longer complacently depend on Cairo’s goodwill – will help shield us against more undesirable consequences accruing from Egypt’s domestic cataclysm.
There is no time to waste.